Will Egypt embrace Israeli Gas?

In the search for export options for its new-found natural gas discoveries, Israel has kept things local in recent months with new agreements with Jordan and even a West Bank utility in January of this year. However, the country’s ability to rebuild – and reverse – a gas trade route to Egypt has been hampered by political resentment and logistical hurdles. This all appeared to change late last month with the news that production partners in Israel’s Leviathan offshore gas field has signed a non-binding agreement with the BG Group to export gas from a “floating production, storage and offloading [vessel]” and connected to an LNG facility through a subsea pipeline.

For BG, a link to the field’s estimated 18 trillion cubic feet of gas would help ease pressure from the significant drop in gas output from Egyptian projects that has occurred over the last three years. The letter of intent comes shortly after a similar deal was struck to export 2.5 trillion cubic feet of gas over 15 years from Israel’s Tamar field through the Damietta LNG plant in Egypt, which is operated by Union Fenosa Gas.

However, before either project can be approved, Cairo has made it clear that some of the reserves will have to be set aside for domestic consumption.

“Things are different in Egypt now and we see no issue in this deal if it is beneficial for the country,” a senior Egyptian oil official told The Wall Street Journal this week. “We will give our approval on the deal if some of the gas is fed to the domestic market and is reasonably priced.”

Facing fuel shortages throughout the country due to a decline in local production, daunting foreign debt and a subsidy program that has proven to be politically poisonous, Cairo has searched for ways to increase access to new, affordable resources. Despite early opposition to restarting energy trade with Israel, Cairo now appears willing to explore the possibility of Israeli gas through Egyptian ports, but not without certain criteria in place.

“Both deals will not go ahead if the Egyptian government is against them and the companies know that very well. So these deals have to work out for everyone involved,” the official told The Wall Street Journal, calling on BG to reserve some of the exports for Egyptian demand.